Marijuana’s Fate May Hinge On Raisins And Wheat

Residents of the sovereign states of Colorado and Washington recently voted to legalize recreational marijuana use, though the federal government claims to have the last word on the subject. Specifically, the word “no.”

This legal tug-of-war over the popular smoked herb may hinge on the fate of two much less controversial agricultural products: raisins and wheat.

As with so many other disputes over the reach of federal power, this one centers on the Constitution’s Commerce Clause. Can Congress regulate the production, distribution, sale and possession of a commodity that could, at least in theory, occur entirely within a state, or even in a family’s backyard?

The answer may come in an appeal the Supreme Court has agreed to hear from California raisin producers Marvin and Laura Horne, who are challenging a federal price support program.

Under the program, the U.S. Department of Agriculture can require a portion of the raisin crop to be held back from the market, with the goal of limiting supply to keep prices from falling. The surplus, managed by an industry board called the Raisin Administrative Committee (RAC), can be sold only in non-competitive markets, such as for use in the federal school lunch program. Growers must accept their share of whatever price the RAC manages to get for it.

In both 2003 and 2004, the RAC “determined that the compensation for the reserve-tonnage raisins should be set at precisely zero dollars,” according to the Hornes’ attorney, Michael McConnell. In those two years, the RAC took 47 percent and 30 percent of crops, respectively.

To avoid handing over their raisins in those years, the Hornes organized other independent growers to try to exploit a distinction drawn by the law between “handlers” and “producers.” The USDA wasn’t convinced and fined the group a combined $650,000. Now the Hornes are challenging the program itself, claiming that it constitutes an unconstitutional “taking” of personal property without just compensation.

In its review of the case, the Ninth Circuit Court ruled against the Hornes, explaining that, although the program could be called “taking” in a “colloquial sense,” it could not in a technical sense. However, the Ninth Circuit then introduced an equally thorny issue: interstate commerce. According to the court, the requirement that a percent of raisin crops be set aside is not unconstitutional “taking” because it is not a direct appropriation, but rather a condition that must be met by those who “voluntarily choose to send their raisins into the stream of interstate commerce.

The Commerce Clause grants Congress the power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” As part of that right, Congress can set conditions that must be met as a requirement for trading any particular commodity.

But what if the Hornes had not sent their raisins “into the stream of interstate commerce?” What if they had sold them only within California? Alternatively, what if they had set up a baking enterprise themselves, to go along with their raisin business, and had used the raisins themselves to make raisin bread?

All of this hearkens back to a World War II-era case involving the production and sale of wheat. In that case, Wickard v. Filburn, the Supreme Court ruled that federal regulations limiting wheat production, justified by the Commerce Clause, could apply to wheat that was intended for personal consumption. Even if the wheat in question never crossed a state line, or never even left grower Roscoe Filburn’s farm, personal wheat production in the aggregate could still impact the supply and demand balance of the national wheat trade, the Court found. The ruling gave the federal government wide-reaching power to regulate even non-commercial activities within states.

Since then, Wickard has served as the foundation for a variety of laws, including other agricultural oversight measures such as the raisin program and better-known laws such as the Controlled Substances Act. As I have written before, a reversal of Wickard would topple a mountain of legal precedent. It is not clear what would emerge from the rubble.

The Supreme Court still has plenty of possible routes to resolve the raisin case without directly addressing Wickard. As Solicitor Gen. Donald Verrilli Jr. has pointed out, the Hornes did not actually surrender their raisins, and so they may not have the standing to challenge the law. They “cannot flout the raisin marketing order and then challenge the resulting monetary assessment on the ground that compensation might hypothetically be owed if they had complied,” he said.

There is also no evidence that the Hornes made any effort to keep the raisins they sold within California borders. The Ninth Circuit opinion says only that they “sold raisins to wholesale customers.” The law setting up the raisin reserve program specifically states that it applies even to those who sell raisins exclusively within the state of California. But since 99.5 percent of the nation’s raisins come from California, it seems likely that at least some of the Hornes’ raisins left the state. The Supreme Court could, therefore, decide to ignore the hypothetical scenario of a California-exclusive raisin empire.

But the Supreme Court is not generally in the habit of taking cases with the intention of deciding them on narrow grounds. The fact that the Court has decided to hear the case may signal that it is ready to look at some larger legal issue, possibly including the precedent of Wickard.

The Court is expected to hear arguments in the case in March. When it does, I don’t think that raisin producers will be the only group of farmers who will be watching closely; so will many whose only “crop” is grown in a suburban backyard or grow house.

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About Larry M. Elkin 520 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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